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Press release from PR Newswire

PepsiCo Reports Third Quarter 2012 Results

Wednesday, October 17, 2012

PepsiCo Reports Third Quarter 2012 Results07:00 EDT Wednesday, October 17, 2012-- Third quarter reported EPS of $1.21 and core(1) EPS of $1.20 -- Company reaffirms 2012 core constant currency(1) net revenue and core constant currency EPS guidance -- Reflecting the impact of previously announced structural changes and negative foreign exchange translation, reported net revenue declined 5 percent, in line with expectations. Excluding these impacts, organic(1) net revenue grew 5 percent -- Company expects to return more than $6 billion to shareholders through dividends and share repurchases in 2012 -- Company expects to deliver more than $1 billion in productivity savings in 2012 and $3 billion in savings by 2015PURCHASE, N.Y., Oct. 17, 2012 /PRNewswire/ -- PepsiCo, Inc. (NYSE: PEP) today reported a decline in third quarter net revenue of 5 percent, reflecting a negative 5-percentage-point impact from previously announced structural changes (primarily beverage refranchisings in China and Mexico), and a negative 5-percentage-point impact from foreign exchange translation.  Excluding these items, third quarter net revenue grew 5 percent on an organic basis. (Logo:  http://photos.prnewswire.com/prnh/20120424/NY93895LOGO )Reported EPS was $1.21 and core EPS was $1.20.  Management reaffirmed both its 2012 core constant currency net revenue and core constant currency EPS guidance and stated that its 2012 strategic initiatives are on track."PepsiCo is diligently executing the strategy we set forth at the start of the year, and we remain on track to achieve our full-year targets," said PepsiCo Chairman and CEO Indra Nooyi.  "Our disciplined pricing and sustained investment in brand building drove 5 percent organic net revenue growth reflecting 1 percent organic volume growth and 4 percent effective net pricing."We remain focused on our five priorities.  We will continue to invest aggressively to build our brands, accelerate innovation to drive growth, focus on execution and deliver our productivity agenda while returning cash to shareholders."1Please refer to the Glossary for the definitions of Non-GAAP financial measures including core, constant currency, organic and management operating cash flow.Operating and Marketplace Highlights Achieved 5 percent organic net revenue growth with a good balance between volume growth and price realization. Grew global snacks net revenue on a reported basis.  Grew both global snacks and global beverage net revenue on an organic basis. Emerging and developing market net revenue declined 13 percent, primarily due to beverage refranchisings in China and Mexico.  On an organic basis, emerging and developing market net revenue grew 11 percent. While reported net revenue in AMEA and Europe declined 21 percent and 6 percent, respectively, organic net revenue grew 10 percent and 7 percent, respectively. PAF saw balanced revenue growth driven by volume growth and effective net price realization. Substantially increased advertising and marketing expense in the quarter, supporting the company's long-term brand building initiatives. Activated our expanded partnership with the NFL across snacks and beverages with retail programming in 22 of 32 team markets and announced that Pepsi will be the official sponsor of the 2013 Super Bowl halftime show.  Doritos will again drive its highly popular Crash the Super Bowl program. Summary of Third Quarter Financial PerformanceOrganic net revenue growth was 5 percent.  Reported net revenue benefited from 1 percentage point of volume growth and 4 percentage points of effective net pricing, offset by negative foreign exchange translation of 5 percentage points.  Structural changes, primarily refranchisings in China and Mexico, negatively impacted reported net revenue performance by 5 percentage points.  Reported operating profit declined 4 percent and core operating profit declined 8 percent.  Core operating profit performance reflected the impact of increased commodity costs, increased advertising and marketing expense, higher corporate unallocated expenses reflecting increased pension expense and a negative 3 percentage point impact of foreign exchange translation.  Core operating profit excluded mark-to-market net gains on commodity hedges, restructuring and certain impairment charges as well as merger and integration charges. Net interest expense was $181 million and included $24 million in mark-to-market gains on investments related to deferred compensation liabilities.  There is a corresponding offset to these gains within selling, general and administrative expense resulting in no net benefit to earnings. The company's reported effective tax rate was 27 percent.  The company's core effective tax rate was 26.3 percent, 90 basis points above the prior year quarter due to an adjustment to international deferred taxes, partially offset by tax benefits generated from an international acquisition. Reported EPS was $1.21 and core EPS was $1.20. Core EPS excludes a $0.04 per share impact of certain restructuring, impairment and integration charges and a $0.05 per share impact from mark-to-market net gains on commodity hedges. Mark-to-market gains and losses are subsequently reflected in core division results when the divisions take delivery of the underlying commodity. Operating cash flow was $5.1 billion year to date. Management operating cash flow (excluding certain items) was $4.9 billion. The company has returned $4.8 billion to shareholders through dividends and share repurchases through the end of the third quarter, and expects to return more than $6 billion to shareholders for the full year 2012. Summary Third Quarter 2012 Performance (Percent Growth) Reported CoreUSDa Core Constant Currencya OrganicbVolumec     Snacks63    Beverages31Net Revenue(5)(5)-5Operating Profitd(4)(8)(5)EPS(3)(8)(4) Summary Third Quarter 2012 Business Segment Performance (Percent Growth)Corea     Constant Currencya   Volumec Net Revenue Operating ProfitdOrganicNetRevenue Net Revenue Operating Profit  Operating Profit PAF62.5(6)67(1)(3)    FLNA13-3311    LAF15e2(21)1315-(10)    QFNA2-(13)10.5(11)(12)PAB(3)(7)(16)-(6)(13)(15)Europe-/1f(6)(6)773(7)AMEA13/15f(21)1110(17)1413Total Divisions 6/3 (5) (7) 5 - (3) (6)Total PepsiCo(5) (4) 5-(5) (8)aThe above core results and core constant currency results are non-GAAP financial measures that exclude certain items affecting comparability.  For more information about our core results and core constant currency results, see "Reconciliation of GAAP and Non-GAAP Information" in the attached exhibits.  Please refer to the Glossary for definitions of "Constant Currency" and "Core".bOrganic results are non-GAAP financial measures that exclude the impact of acquisitions and divestitures and foreign exchange translation.  Please refer to the Glossary for additional information regarding organic results.c Volume growth measures reflect an adjustment to the base year (2011) for divestitures that occurred in 2011 and 2012, as applicable.dThe reported operating profit performance was impacted by certain items excluded from our core results in both 2012 and 2011.  See "Reconciliation of GAAP and Non-GAAP Information" in the attached exhibits for more information about these items.  Please refer to the Glossary for the definition of "Core".eLAF volume included 11 percentage points of benefit related to acquisitions.fSnacks/Beverages.  AMEA beverage volume includes 7 points of benefit related to co-branded juice drinks in China.All comparisons are on a core year-over-year basis unless otherwise noted.Division Operating SummariesPepsiCo Americas Foods (PAF)Organic net revenue grew 6 percent in the quarter, and reported net revenue grew 2.5 percent. Net revenue growth was driven by effective net pricing supported by contributions from innovation and increased media support. Core constant currency operating profit declined 1 percent, reflecting higher commodity costs and increased advertising and marketing investments across all PAF divisions, partially offset by productivity initiatives. Frito-Lay North America (FLNA)Organic net revenue increased 3 percent driven by a 1 percent increase in volume coupled with 2 percent effective net pricing.  Volume was negatively impacted in the quarter by a calendar shift related to the Labor Day holiday.  Net revenue growth was driven by the C-store, club, dollar and foodservice channels.  Reported net revenue grew 3 percent.Operating profit growth of 1 percent in the quarter reflected higher commodity costs and a significant increase in advertising and marketing investments offset by effective net pricing and productivity initiatives.Latin America Foods (LAF)On an organic basis, LAF net revenue grew 13 percent.  Net revenue growth reflected 4 percentage points of organic volume growth and 9 percentage points of effective net pricing.  Reported net revenue grew 2 percent, reflecting a 2-percentage-point benefit from acquisitions and divestitures, offset by a 13-percentage-point unfavorable foreign exchange translation impact.   Core constant currency operating profit was even with the prior year quarter reflecting increased advertising and marketing expense and commodity cost inflation. Quaker Foods North America (QFNA)Organic net revenue grew modestly.  Reported net revenue performance was even with the prior year quarter, reflecting 2 percentage points of volume growth offset by lower pricing and mix.  Core constant currency operating profit in the quarter declined 11 percent driven principally by higher commodity costs and increased advertising and marketing expense.  PepsiCo Americas Beverages (PAB)On an organic basis, net revenue was even with the prior year quarter.  Effective net pricing increased by 3 percentage points and bottler case volume declined 3 percent.  Volume was negatively impacted by 1 percentage point in the quarter due to a calendar shift related to the Labor Day holiday.  Positive volume and pricing trends continued within the convenience and gas channel.  Reported net revenue declined 7 percent, primarily reflecting a negative 6-percentage-point impact of the refranchising of the division's Mexican beverage business in the fourth quarter of 2011 and a negative 1-percentage-point impact from foreign exchange translation. Operating profit declined in the quarter primarily reflecting increased commodity costs and higher advertising and marketing expense, partially offset by favorable effective net pricing and savings resulting from productivity initiatives. The refranchising of the division's Mexican beverage business negatively impacted operating profit performance by more than 2 percentage points.EuropeOn an organic basis, net revenue grew 7 percent with a focus on product mix management to drive margin accretion and healthy growth in Russia partially offset by softer trends in Western Europe.  Reported net revenue declined 6 percent, reflecting 6 percentage points of effective net pricing which was more than offset by an unfavorable foreign exchange translation impact of 12 percentage points.  Core constant currency operating profit grew 3 percent in the quarter with significantly higher marketing investments and commodity cost inflation offset by productivity savings.  Operating profit performance was negatively impacted by 4 percentage points due to an impairment charge associated with operations in Greece.  Operating profit performance was positively impacted by 8 percentage points attributable to net favorable adjustments of certain operating items and favorable comparisons related to timing of concentrate shipments in connection with our global SAP implementation in the third quarter of 2011.  Asia, Middle East & Africa (AMEA)On an organic basis, net revenue grew 10 percent, led by double-digit organic volume growth in snacks and high-single-digit organic volume growth in beverages.  Reported net revenue declined 21 percent reflecting a 27-percentage-point negative impact from structural changes, principally the refranchising of bottling operations in China, and a negative 4-percentage-point impact from foreign exchange translation. Core constant currency operating profit grew 14 percent, driven by volume growth and effective net pricing partially offset by higher commodity costs. The impact of acquisitions and divestitures reduced operating profit by 5 percent while a favorable comparison related to timing of concentrate shipments in connection with our global SAP implementation in the third quarter of 2011 increased operating profit by 7 percent.  RestructuringAs previously announced, the company has committed to a multi-year productivity program.  The company incurred pre-tax, non-core restructuring charges of $83 million in the third quarter of 2012 and has incurred $193 million year to date.  The company anticipates additional charges of approximately $205 million in the balance of 2012 and $129 million from 2013 through 2015.  Charges under this program resulted in cash expenditures of $103 million in the third quarter of 2012 and $243 million year to date.  The company anticipates additional cash expenditures of approximately $175 million in the remainder of 2012, with the balance of approximately $287 million of related cash expenditures expected in 2013 through 2015.  2012 Guidance and OutlookConsistent with its previous guidance for 2012, the company expects a decline in core constant currency EPS of approximately 5 percent from its fiscal 2011 core EPS of $4.40.  Based on the current foreign exchange market consensus, foreign exchange translation would have an unfavorable impact of approximately three percentage points on the company's full year core EPS performance in 2012.  Consistent with its previous guidance, the company expects core constant currency net revenue growth of low-single-digits reflecting the impact of structural changes, principally refranchisings, which are expected to reduce core constant currency net revenue growth by approximately three percentage points for the full year.  Excluding these structural changes, core constant currency net revenue is expected to grow mid-single-digits, consistent with the company's prior guidance.  The company is targeting approximately $8 billion in cash flow from operating activities and more than $6 billion in management operating cash flow (excluding certain items) in 2012, which includes the favorable impact of an expected 10 percent reduction in capital spending and improved working capital efficiency.  The company also made a pre-tax discretionary pension and retiree medical contribution of $1 billion in the first quarter of 2012.Reflecting its commitment to return capital to shareholders, the company anticipates more than $3 billion in share repurchases for 2012, and expects to pay $3.3 billion in dividends.  Conference CallAt 8 a.m. (Eastern Time) today, the company will host a conference call with investors to discuss third-quarter results and the outlook for 2012. Further details, including a slide presentation accompanying the call, will be accessible on the company's website at www.pepsico.com/investors in advance of the call.  PepsiCo, Inc. and SubsidiariesCondensed Consolidated Statement of Income(in millions except per share amounts, unaudited)12 Weeks Ended36 Weeks Ended9/8/20129/3/2011Change9/8/20129/3/2011ChangeNet Revenue $ 16,652$ 17,582(5)%$ 45,538$ 46,346(2)%Cost of sales7,8338,452(7)%21,63721,862(1)%Selling, general and administrative expenses5,9926,186(3)%16,92016,995?%Amortization of intangible assets 2738(29)%82103(21)%Operating Profit 2,8002,906(4)%6,8997,386(7)%Interest expense (204)(205)?%(611)(584)5%Interest income and other 23(4)n/m473342%Income before income taxes 2,6192,697(3)%6,3356,835(7)%Provision for income taxes 7066863%1,7881,7751%Net income 1,9132,011(5)%4,5475,060(10)%Less: Net income attributable to 11118%3032(6)%noncontrolling interests Net Income Attributable to PepsiCo $ 1,902$ 2,000(5)%$ 4,517$ 5,028(10)%DilutedNet Income Attributable to PepsiCo per Common Share $     1.21$    1.25(3)%$   2.86$   3.14(9)%Average Shares Outstanding 1,5751,5991,5801,603Cash dividends declared per common share $ 0.5375$  0.515$   1.59$   1.51n/m = not meaningfulA-1 PepsiCo, Inc. and SubsidiariesSupplemental Financial Information(in millions, unaudited)12 Weeks Ended36 Weeks Ended9/8/20129/3/2011Change9/8/20129/3/2011ChangeNet RevenueFrito-Lay North America $   3,269$  3,1733%$  9,472$   9,1673%Quaker Foods North America 615614?%1,8211,837(1)%Latin America Foods 1,8831,8412%5,0664,7577%PepsiCo Americas Foods 5,7675,6282.5%16,35915,7614%PepsiCo Americas Beverages 5,5305,947(7)%15,33016,107(5)%Europe 3,6913,909(6)%9,1539,329(2)%Asia, Middle East & Africa 1,6642,098(21)%4,6965,149(9)%Total Net Revenue $ 16,652$ 17,582(5)%$ 45,538$  46,346(2)%Operating ProfitFrito-Lay North America $      917$ 918?%$  2,532$   2,545(0.5)%Quaker Foods North America 154177(13)%495558(11)%Latin America Foods 219275(21)%673720(7)%PepsiCo Americas Foods 1,2901,370(6)%3,7003,823(3)%PepsiCo Americas Beverages 837992(16)%2,2022,533(13)%Europe 483514(6)%1,0179843%Asia, Middle East & Africa 31728511%630730(14)%Division Operating Profit 2,9273,161(7)%7,5498,070(6)%Corporate UnallocatedNet Impact of Mark-to-Market on Commodity Hedges 121(53)n/m126(31)n/mMerger and Integration Charges 2(10)n/m?(64)n/mRestructuring and Impairment Charges (7)?n/m(8)?n/mOther (243)(192)27%(768)(589)30%(127)(255)(50)%(650)(684)(5)%Total Operating Profit $   2,800$   2,906(4)%$  6,899$   7,386(7)%n/m = not meaningfulA-2 PepsiCo, Inc. and SubsidiariesCondensed Consolidated Statement of Cash Flows(in millions, unaudited)36 Weeks Ended9/8/20129/3/2011Operating ActivitiesNet income $ 4,547$ 5,060Depreciation and amortization 1,8371,877Stock-based compensation expense 193222Restructuring and impairment charges 193?Cash payments for restructuring charges (243)(1)Merger and integration charges 7174Cash payments for merger and integration charges (57)(293)Restructuring and other charges related to the transaction with Tingyi (Cayman Islands) Holding Corp. (Tingyi)163?Cash payments for restructuring and other charges related to the transaction with Tingyi (98)?Excess tax benefits from share-based payment arrangements (89)(56)Pension and retiree medical plan contributions (1,253)(185)Pension and retiree medical plan expenses 414389Deferred income taxes and other tax charges and credits 283132Change in accounts and notes receivable (1,300)(1,643)Change in inventories (234)(466)Change in prepaid expenses and other current assets (83)(54)Change in accounts payable and other current liabilities 281142Change in income taxes payable 736936Other, net (179)(400)Net Cash Provided by Operating Activities 5,1185,834Investing ActivitiesCapital spending (1,409)(1,962)Sales of property, plant and equipment 5846Acquisition of Wimm-Bill-Dann Foods OJSC (WBD), net of cash and cash equivalents acquired ?(2,428)Investment in WBD ?(164)Cash payments related to the transaction with Tingyi (298)?Other acquisitions and investments in noncontrolled affiliates (76)(160)Divestitures 710Short-term investments, net (21)(34)Other investing, net 11(3)Net Cash Used for Investing Activities (1,728)(4,695)Financing ActivitiesProceeds from issuances of long-term debt 5,2073,000Payments of long-term debt (1,357)(1,596)Debt repurchase ?(771)Short-term borrowings, net (2,194)56Cash dividends paid (2,470)(2,349)Share repurchases -- common (2,328)(1,929)Share repurchases -- preferred (5)(5)Proceeds from exercises of stock options 927724Excess tax benefits from share-based payment arrangements 8956Acquisition of noncontrolling interests (15)(1,327)Other financing (18)(2)Net Cash Used for Financing Activities (2,164)(4,143)Effect of exchange rate changes on cash and cash equivalents 16144Net Increase/(Decrease) in Cash and Cash Equivalents1,242(2,860)Cash and Cash Equivalents ? Beginning of Year 4,0675,943Cash and Cash Equivalents ? End of Period $ 5,309$ 3,083A-3 PepsiCo, Inc. and SubsidiariesCondensed Consolidated Balance Sheet(in millions except per share amounts)9/8/201212/31/2011Assets(unaudited)Current AssetsCash and cash equivalents $     5,309$     4,067Short-term investments 402358Accounts and notes receivable, net 7,9986,912InventoriesRaw materials 1,9301,883Work-in-process 253207Finished goods 1,7221,7373,9053,827Prepaid expenses and other current assets 1,6562,277Total Current Assets 19,27017,441Property, plant and equipment, net 18,53019,698Amortizable intangible assets, net 1,7991,888Goodwill 16,70116,800Other nonamortizable intangible assets 14,51114,557Nonamortizable Intangible Assets 31,21231,357Investments in noncontrolled affiliates 1,5851,477Other assets 1,6211,021Total Assets $    74,017$    72,882Liabilities and EquityCurrent LiabilitiesShort-term obligations $ 4,211$ 6,205Accounts payable and other current liabilities 11,72211,757Income taxes payable 287192Total Current Liabilities 16,22018,154Long-term debt obligations 23,73220,568Other liabilities 7,5518,266Deferred income taxes 4,9304,995Total Liabilities 52,43351,983Commitments and ContingenciesPreferred stock, no par value 4141Repurchased preferred stock (162)(157)PepsiCo Common Shareholders' EquityCommon stock, par value 12/3¢ per share (authorized 3,6003131shares, issued 1,865 shares) Capital in excess of par value 4,1794,461Retained earnings 42,33240,316Accumulated other comprehensive loss (6,086)(6,229)Repurchased common stock, at cost (314 and 301 shares, respectively) (18,896)(17,875)Total PepsiCo Common Shareholders' Equity 21,56020,704Noncontrolling interests145311Total Equity 21,58420,899Total Liabilities and Equity $    74,017$    72,882A-4 PepsiCo, Inc. and Subsidiaries Supplemental Share and Stock-Based Compensation Data (in millions except dollar amounts, unaudited)12 Weeks Ended36 Weeks Ended9/8/20129/3/20119/8/20129/3/2011Beginning Net Shares Outstanding 1,5591,5851,5651,582Options Exercised/Restricted Stock Units Converted 922217Shares Repurchased (16)(19)(35)(31)Ending Net Shares Outstanding 1,5521,5681,5521,568Weighted Average Basic 1,5561,5781,5621,581Dilutive Securities:Options 12141215Restricted Stock Units 6656ESOP Convertible Preferred Stock/Other 1111Weighted Average Diluted 1,5751,5991,5801,603Average Share Price for the Period $ 71.26$ 66.17$ 67.64$ 66.29Growth Versus Prior Year 8%3%2%4%Options Outstanding 739680100Options in the Money 72746679Dilutive Shares from Options 12141215Dilutive Shares from Options as a % of Options in the Money 16%20%17%19%Average Exercise Price of Options in the Money $ 58.37$ 52.03$ 55.28$ 52.11Restricted Stock Units Outstanding 12121113Dilutive Shares from Restricted Stock Units 6656Average Intrinsic Value of Restricted Stock Units Outstanding* $ 65.51$ 62.97$ 65.33$ 62.91* Weighted average intrinsic value at grant dateA-5 PepsiCo, Inc. and SubsidiariesReconciliation of GAAP and Non-GAAP Information (in millions except per share amounts, unaudited)Operating Profit Growth Reconciliation 12 Weeks Ended 9/8/2012 Reported Total Operating Profit Growth(4)%Impact of Corporate Unallocated(4)Division Operating Profit Growth(7)%**Does not sum due to roundingOperating Profit Growth Reconciliation12 Weeks Ended 9/8/2012  9/3/2011 GrowthReported Total Operating Profit $               2,800$              2,906(4)%Mark-to-Market Net (Gains)/Losses(121)53Merger and Integration Charges245Inventory Fair Value Adjustments-3Restructuring and Impairment Charges83-Core Total Operating Profit $               2,764$              3,007(8)%Impact of Foreign Currency Translation3Core Constant Currency Operating Profit Growth(5)%Diluted EPS Reconciliation12 Weeks Ended 9/8/2012  9/3/2011 GrowthReported Diluted EPS$                 1.21$                1.25(3)%Mark-to-Market Net (Gains)/Losses(0.05)0.02Merger and Integration Charges-0.03Restructuring and Impairment Charges0.04-Core Diluted EPS$                 1.20$                1.31*(8)%Impact of Foreign Currency Translation4Core Constant Currency Diluted EPS(4)%*Does not sum due to roundingYear Ended     12/31/2011 Reported Diluted EPS$                 4.0353rd Week(0.04)Mark-to-Market Net Losses0.04Merger and Integration Charges 0.17Restructuring and Impairment Charges0.18Inventory Fair Value Adjustments0.02Core Diluted EPS$                 4.40Net Cash Provided by Operating Activities Reconciliation36 Weeks Ended 9/8/2012 Net Cash Provided by Operating Activities$               5,118Capital Spending(1,409)Sales of Property, Plant and Equipment58Management Operating Cash Flow3,767Discretionary Pension and Retiree Medical Contributions (after-tax)770Payments Related to Restructuring Charges (after-tax)203Merger and Integration Payments (after-tax)44Capital Investments Related to the PBG/PAS Integration8Capital Investments Related to the Productivity Plan12Payments for Restructuring and Other Charges Related tothe Transaction with Tingyi98Management Operating Cash Flow excluding above Items$               4,902Net Cash Provided by Operating Activities Reconciliation (in billions)2012 GuidanceNet Cash Provided by Operating Activities$                   ~8 Net Capital Spending~(3)Management Operating Cash Flow~5 Certain Other Items*~1 Management Operating Cash Flow excluding Certain Other Items$                   ~6   *Certain other items include discretionary pension and retiree medical contributions, payments related to restructuring charges, payments for restructuring and other charges related to the transaction with Tingyi, merger and integration payments, capital investments related to the Productivity Plan and capital investments related to the PBG/PAS integrationA-6 PepsiCo, Inc. and SubsidiariesReconciliation of GAAP and Non-GAAP Information (cont.)(unaudited)Global Beverages Net Revenue Growth Reconciliation12 Weeks Ended 9/8/2012 Reported Global Beverages Net Revenue Growth.(10)%Impact of Acquisitions and Divestitures10Impact of Foreign Currency Translation4Organic Global Beverages Net Revenue Growth3%* *Does not sum due to roundingGlobal Snacks Net Revenue Growth Reconciliation12 Weeks Ended 9/8/2012 Reported Global Snacks Net Revenue Growth1%Impact of Foreign Currency Translation6Organic Global Snacks Net Revenue Growth7%Emerging and Developing Market Net Revenue Growth Reconciliation12 Weeks Ended 9/8/2012 Total Reported Emerging and Developing Market Net Revenue Growth(13)%Impact of Acquisitions and Divestitures14Impact of Foreign Currency Translation10Emerging and Developing Markets Organic Net Revenue Growth11%A-7 PepsiCo, Inc. and SubsidiariesReconciliation of GAAP and Non-GAAP Information (cont.)Certain Line Items12 Weeks Ended September 8, 2012 and September 3, 2011(in millions except per share amounts, unaudited)GAAP MeasureNon-Core AdjustmentsNon-GAAP MeasureReportedCommodity mark-to-market net gainsRestructuring and impairment chargesMerger and integration chargesCore*12 WeeksEnded 9/8/1212 WeeksEnded 9/8/12Cost of sales$      7,833$                 75$                 -$             -$         7,908Selling, general and administrative expenses$      5,992$                 46$                (83)$           (2)$         5,953Operating profit $      2,800$              (121)$                 83$            2$         2,764Provision for income taxes$         706$                (51)$                 24$            -$            679Net income attributable to PepsiCo$      1,902$                (70)$                 59$            2$         1,893Net income attributable to PepsiCo per common share - diluted$        1.21$             (0.05)$              0.04$            -$           1.20Effective tax rate26.9%26.3%GAAP MeasureNon-Core AdjustmentsNon-GAAP MeasureReportedCommodity mark-to-market net lossesMerger and integration chargesInventory fair value adjustmentsCore*12 Weeks Ended 9/3/1112 Weeks Ended 9/3/11Cost of sales$      8,452$                 -$                 -$             (3)$         8,449Selling, general and administrative expenses$      6,186$              (53)$              (45)$              -$         6,088Operating profit $      2,906$               53$               45$              3$         3,007Interest expense$        (205)$                 -$               16$              -$           (189)Provision for income taxes$         686$               19$                 8$              1$            714Net income attributable to PepsiCo$      2,000$               34$               53$              2$         2,089Net income attributable to PepsiCo per common share - diluted$        1.25$            0.02$            0.03$              -$           1.31**Effective tax rate25.4%25.4%*Core results are financial measures that are not in accordance with GAAP and exclude the above non-core adjustments.  See A-18 through A-20 for a discussion of each of these non-core adjustments.**Does not sum due to rounding.A-8 PepsiCo, Inc. and SubsidiariesReconciliation of GAAP and Non-GAAP Information (cont.)Certain Line Items36 Weeks Ended September 8, 2012 and September 3, 2011(in millions except per share amounts, unaudited)GAAP MeasureNon-Core AdjustmentsNon-GAAP MeasureReportedCommodity mark-to-market net gainsRestructuring and impairment chargesMerger and integration chargesRestructuring and other charges related to the transaction with TingyiCore*36 Weeks Ended 9/8/1236 Weeks Ended 9/8/12Cost of sales$    21,637$                 68$                 -$              -$                -$    21,705Selling, general and administrative expenses$    16,920$                 58$              (193)$              (7)$             (137)$    16,641Operating profit $      6,899$              (126)$               193$               7$              137$      7,110Provision for income taxes$      1,788$                (51)$                 54$               1$               (26)$      1,766Net income attributable to PepsiCo$      4,517$                (75)$               139$               6$              163$      4,750Net income attributable to PepsiCo per common share - diluted$        2.86$             (0.05)$              0.09$              -$             0.10$        3.01**Effective tax rate28.2%27.0%GAAP MeasureNon-Core AdjustmentsNon-GAAP MeasureReportedCommodity mark-to-market net lossesMerger and integration chargesInventory fair value adjustmentsCore*36 Weeks Ended 9/3/1136 Weeks Ended 9/3/11Cost of sales$    21,862$                 -$                 -$          (41)$         21,821Selling, general and administrative expenses$    16,995$              (31)$           (158)$              -$         16,806Operating profit $      7,386$               31$            158$           41$           7,616Interest expense$        (584)$                 -$              16$              -$             (568)Provision for income taxes$      1,775$               11$              27$           10$           1,823Noncontrolling interests $           32$                 -$                 -$             6$                38Net income attributable to PepsiCo$      5,028$               20$            147$           25$           5,220Net income attributable to PepsiCo per common share - diluted$        3.14$            0.01$           0.09$        0.02$             3.26Effective tax rate26.0%25.8%*Core results are financial measures that are not in accordance with GAAP and exclude the above non-core adjustments.  See A-18 through A-20 for a discussion of each of these non-core adjustments.**Does not sum due to rounding.A-9 PepsiCo, Inc. and SubsidiariesReconciliation of GAAP and Non-GAAP Information (cont.)Operating Profit by Division12 Weeks Ended September 8, 2012 and September 3, 2011(in millions, unaudited)GAAP MeasureNon-Core AdjustmentsNon-GAAP MeasureReportedCommodity mark-to-market netgainsRestructuring andimpairmentchargesMerger and integration chargesCore*Operating Profit12 Weeks Ended 9/8/1212 Weeks Ended 9/8/12Frito-Lay North America$         917$                   -$                   8$                -$               925Quaker Foods North America154-1-155Latin America Foods219-29-248   PepsiCo Americas Foods1,290-38-1,328PepsiCo Americas Beverages837-33-870Europe483-(1)4486Asia, Middle East & Africa317-6-323Division Operating Profit2,927-7643,007Corporate Unallocated(127)(121)7(2)(243)Total Operating Profit$      2,800$              (121)$                 83$               2$            2,764GAAP MeasureNon-Core AdjustmentsNon-GAAP MeasureReportedCommodity mark-to-market net lossesMerger and integration chargesInventory fair value adjustmentsCore*Operating Profit12 Weeks Ended 9/3/1112 Weeks Ended 9/3/11Frito-Lay North America$         918$                   -$                   -$                -$               918Quaker Foods North America177---177Latin America Foods275---275   PepsiCo Americas Foods1,370---1,370PepsiCo Americas Beverages992-2431,019Europe514-11-525Asia, Middle East & Africa285---285Division Operating Profit3,161-3533,199Corporate Unallocated(255)5310-(192)Total Operating Profit$      2,906$                 53$                 45$               3$            3,007*Core results are financial measures that are not in accordance with GAAP and exclude the above non-core adjustments.  See A-18 through A-20 for a discussion of each of these non-core adjustmentsA-10 PepsiCo, Inc. and SubsidiariesReconciliation of GAAP and Non-GAAP Information (cont.)Operating Profit by Division36 Weeks Ended September 8, 2012 and September 3, 2011(in millions, unaudited)GAAP MeasureNon-Core AdjustmentsNon-GAAP MeasureReportedCommodity mark-to-market netgainsRestructuring andimpairmentchargesMerger and integration chargesRestructuring andother charges related to the transaction withTingyiCore*Operating Profit36 Weeks Ended 9/8/1236 Weeks Ended 9/8/12Frito-Lay North America$      2,532$                   -$                 40$                -$                        -$     2,572Quaker Foods North America495-7--502Latin America Foods673-41--714   PepsiCo Americas Foods3,700-88--3,788PepsiCo Americas Beverages2,202-76--2,278Europe1,017-(2)7-1,022Asia, Middle East & Africa630-23-137790Division Operating Profit7,549-18571377,878Corporate Unallocated(650)(126)8--(768)Total Operating Profit$      6,899$              (126)$               193$               7$                    137$     7,110GAAP MeasureNon-Core AdjustmentsNon-GAAP MeasureReportedCommodity mark-to-market net lossesMerger and integration chargesInventory fair value adjustmentsCore*Operating Profit36 Weeks Ended 9/3/1136 Weeks Ended 9/3/11Frito-Lay North America$      2,545$                   -$                   -$                -$                 2,545Quaker Foods North America558---558Latin America Foods720---720   PepsiCo Americas Foods3,823---3,823PepsiCo Americas Beverages2,533-77162,626Europe984-17251,026Asia, Middle East & Africa730---730Division Operating Profit8,070-94418,205Corporate Unallocated(684)3164-(589)Total Operating Profit$      7,386$                 31$               158$             41$                 7,616*Core results are financial measures that are not in accordance with GAAP and exclude the above non-core adjustments.  See A-18 through A-20 for a discussion of each of these non-core adjustmentsA-11 PepsiCo, Inc. and SubsidiariesReconciliation of GAAP and Non-GAAP Information (cont.)Core Growth and Core Constant Currency Growth*(unaudited)12 Weeks Ended 9/8/2012 Net RevenueOperating ProfitFrito-Lay North AmericaReported Growth3%-%Merger and Integration Charges--Restructuring and Impairment Charges-1Core Growth31Impact of Foreign Currency Translation--Core Constant Currency Growth3%1%Quaker Foods North AmericaReported Growth-%(13)%Merger and Integration Charges--Restructuring and Impairment Charges-1Core Growth-(12)Impact of Foreign Currency Translation--Core Constant Currency Growth0.5%(11)%Latin America FoodsReported Growth2%(21)%Merger and Integration Charges--Restructuring and Impairment Charges-10Core Growth2(10)Impact of Foreign Currency Translation 1311Core Constant Currency Growth15%-%PepsiCo Americas FoodsReported Growth2.5%(6)%Merger and Integration Charges--Restructuring and Impairment Charges-3Core Growth2.5(3)Impact of Foreign Currency Translation 42Core Constant Currency Growth7%(1)%PepsiCo Americas BeveragesReported Growth(7)%(16)%Merger and Integration Charges-(2)Restructuring and Impairment Charges-3Core Growth(7)(15)Impact of Foreign Currency Translation11Core Constant Currency Growth(6)%(13)%*Core results and core constant currency results are financial measures that are not in accordance with GAAP and exclude the above non-core adjustments.  See A-18 through A-20 for a discussion of each of these non-core adjustmentsNote ? certain amounts above may not sum due to roundingA-12 PepsiCo, Inc. and SubsidiariesReconciliation of GAAP and Non-GAAP Information (cont.)Core Growth and Core Constant Currency Growth*(unaudited)12 Weeks Ended 9/8/2012 Net RevenueOperating ProfitEuropeReported Growth(6)%(6)%Merger and Integration Charges-(2)Restructuring and Impairment Charges--Core Growth(6)(7)Impact of Foreign Currency Translation1211Core Constant Currency Growth7%3%Asia, Middle East & AfricaReported Growth(21)%11%Merger and Integration Charges--Restructuring and Impairment Charges-2Core Growth(21)13Impact of Foreign Currency Translation41Core Constant Currency Growth(17)%14%Total DivisionsDivision Growth(5)%(7)%Merger and Integration Charges-(1)Restructuring and Impairment Charges-2.5Core Growth(5)(6)Impact of Foreign Currency Translation 53Core Constant Currency Growth-%(3)%*Core results and core constant currency results are financial measures that are not in accordance with GAAP and exclude the above non-core adjustments.  See A-18 through A-20 for a discussion of each of these non-core adjustmentsNote ? certain amounts above may not sum due to roundingA-13 PepsiCo, Inc. and SubsidiariesReconciliation of GAAP and Non-GAAP Information (cont.)Organic Growth*(unaudited)12 Weeks Ended 9/8/2012 Net RevenueFrito-Lay North AmericaReported Growth3%Impact of Acquisitions and Divestitures-Impact of Foreign Currency Translation-Organic Growth3%Quaker Foods North AmericaReported Growth-%Impact of Acquisitions and Divestitures-Impact of Foreign Currency Translation-Organic Growth1%Latin America FoodsReported Growth2%Impact of Acquisitions and Divestitures(2)Impact of Foreign Currency Translation13Organic Growth13%PepsiCo Americas FoodsReported Growth2.5%Impact of Acquisitions and Divestitures(1)Impact of Foreign Currency Translation4Organic Growth6%PepsiCo Americas BeveragesReported Growth(7)%Impact of Acquisitions and Divestitures6Impact of Foreign Currency Translation1Organic Growth-%EuropeReported Growth(6)%Impact of Acquisitions and Divestitures-Impact of Foreign Currency Translation12Organic Growth7%Asia, Middle East & AfricaReported Growth(21)%Impact of Acquisitions and Divestitures27Impact of Foreign Currency Translation4Organic Growth10%Total DivisionsReported Growth(5)%Impact of Acquisitions and Divestitures5Impact of Foreign Currency Translation5Organic Growth5%*Organic Results are financial measures that are not in accordance with GAAP and exclude the impact of acquisitions and divestitures and foreign exchangeNote ? certain amounts above may not sum due to roundingA-14Cautionary Statement Statements in this communication that are "forward-looking statements," including our 2012 guidance, are based on currently available information, operating plans and projections about future events and trends. Terminology such as "believe," "expect," "intend," "estimate," "project," "anticipate," "will" or similar statements or variations of such terms are intended to identify forward-looking statements, although not all forward-looking statements contain such terms.  Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements.  Such risks and uncertainties include, but are not limited to: changes in demand for PepsiCo's products, as a result of changes in consumer preferences and tastes or otherwise; PepsiCo's ability to compete effectively; unfavorable economic conditions in the countries in which PepsiCo operates; damage to PepsiCo's reputation; PepsiCo's ability to grow its business in developing and emerging markets or unstable political conditions, civil unrest or other developments and risks in the countries where PepsiCo operates; trade consolidation or the loss of any key customer; changes in the legal and regulatory environment; PepsiCo's ability to build and sustain proper information technology infrastructure, successfully implement its ongoing business transformation initiative or outsource certain functions effectively; fluctuations in foreign exchange rates; increased costs, disruption of supply or shortages of raw materials and other supplies; disruption of PepsiCo's supply chain; climate change, or legal, regulatory or market measures to address climate change; PepsiCo's ability to hire or retain key employees or a highly skilled and diverse workforce; failure to successfully renew collective bargaining agreements or strikes or work stoppages; failure to successfully complete or integrate acquisitions and joint ventures into PepsiCo's existing operations; failure to successfully implement PepsiCo's global operating model; failure to realize anticipated benefits from our productivity plan; any downgrade of our credit ratings; and any infringement of or challenge to PepsiCo's intellectual property rights.For additional information on these and other factors that could cause PepsiCo's actual results to materially differ from those set forth herein, please see PepsiCo's filings with the SEC, including its most recent annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K.  Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made.  PepsiCo undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.Miscellaneous Disclosures In discussing financial results and guidance, the company may refer to certain non-GAAP measures. Reconciliations of any such non-GAAP measures to the most directly comparable financial measures in accordance with GAAP can be found in the attached exhibits, as well as on the company's website at www.pepsico.com in the "Investors" section under "Investor Presentations." Our non-GAAP measures exclude from reported results those items that management believes are not indicative of our ongoing performance and how management evaluates our operating results and trends.     GlossaryAcquisitions and divestitures: All mergers and acquisitions activity, including the impact of acquisitions, divestitures and changes in ownership or control in consolidated subsidiaries and nonconsolidated equity investees.Beverage volume: Volume shipped to retailers and independent distributors from both PepsiCo and our bottlers.   Core: Core results are non-GAAP financial measures which exclude certain items from our historical results.  In 2012, core results exclude the commodity mark-to-market net impact included in corporate unallocated expenses, restructuring and impairment charges, merger and integration charges in connection with our acquisition of WBD and restructuring and other charges related to the transaction with Tingyi.  In 2011, core results exclude the commodity mark-to-market net impact included in corporate unallocated expenses, as well as merger and integration charges and certain inventory fair value adjustments in connection with our acquisitions of The Pepsi Bottling Group, Inc. (PBG), PepsiAmericas, Inc. (PAS) and WBD.  In addition, full-year 2011 core results exclude an extra week of results and restructuring and impairment charges.  See above for reconciliations of this non-GAAP financial measure to the most directly comparable financial measure in accordance with GAAP.  See "Reconciliation of GAAP and Non-GAAP Information" below for additional information.Constant currency: Financial results assuming constant foreign currency exchange rates used for translation based on the rates in effect for the comparable prior-year period.  In order to compute our constant currency results, we multiply or divide, as appropriate, our current year U.S. dollar results by the current year average foreign exchange rates and then multiply or divide, as appropriate, those amounts by the prior year average foreign exchange rates.Division operating profit: The aggregation of the operating profit for each of our reportable segments, which excludes the impact of corporate unallocated expenses.   Effective net pricing: The combined impact of mix and price.   Management operating cash flow: Net cash provided by operating activities less capital spending plus sales of property, plant and equipment.  See above for a reconciliation of this non-GAAP financial measure to the most directly comparable financial measure in accordance with GAAP (operating cash flow).  Management operating cash flow, excluding certain items: Management operating cash flow, excluding: (1) discretionary pension and post-retirement contributions, (2) restructuring payments, (3) merger and integration payments in connection with the PBG, PAS and WBD acquisitions, (4) capital investments related to the bottling integration, (5) capital investments related to the productivity plan, (6) payments for restructuring and other charges related to the transaction with Tingyi and (7) the tax impacts associated with each of these items, as applicable. This non-GAAP financial measure is our primary measure used to monitor cash flow performance.  See above for a reconciliation of this non-GAAP financial measure to the most directly comparable financial measure in accordance with GAAP (operating cash flow).  See "Reconciliation of GAAP and Non-GAAP Information" below for additional information.    Mark-to-market gain or loss or net impact: Change in market value for commodity contracts that we purchase to mitigate the volatility in costs of energy and raw materials that we consume. The market value is determined based on average prices on national exchanges and recently reported transactions in the marketplace.   Net pricing: The combined impact of list price changes, weight changes per package, discounts and allowances.   Net capital spending: Capital spending less cash proceeds from sales of property, plant and equipment.  Organic: A measure that excludes the impact of acquisitions and divestitures and, beginning with the second quarter 2012 results, foreign exchange translation.  In excluding the impact of foreign exchange translation, we assume constant foreign exchange rates used for translation based on the rates in effect for the comparable prior-year period.  See the definition of "constant currency" above for additional information.Pricing: The impact of list price changes and weight changes per package.  Reconciliation of GAAP and Non-GAAP Information (unaudited) Core results, core constant currency results, organic results and division operating profit are non-GAAP financial measures as they exclude certain items noted below.  However, we believe investors should consider these measures as they are more indicative of our ongoing performance and with how management evaluates our operational results and trends.  53rd week impactIn 2011, we had an additional week of results (53rd week).  Our fiscal year ends on the last Saturday of each December, resulting in an additional week of results every five or six years.  The 53rd week increased net revenue by $623 million and operating profit by $109 million in the quarter and year ended December 31, 2011.Commodity mark-to-market net impactIn the 12 and 36 weeks ended September 8, 2012, we recognized $121 million and $126 million, respectively, of mark-to-market net gains on commodity hedges in corporate unallocated expenses.  In the 12 and 36 weeks ended September 3, 2011, we recognized $53 million and $31 million, respectively, of mark-to-market net losses on commodity hedges in corporate unallocated expenses.  In the year ended December 31, 2011, we recognized $102 million of mark-to-market net losses on commodity hedges in corporate unallocated expenses.  We centrally manage commodity derivatives on behalf of our divisions.  Certain of these commodity derivatives do not qualify for hedge accounting treatment and are marked to market with the resulting gains and losses recognized in corporate unallocated expenses.  These gains and losses are subsequently reflected in division results when the divisions take delivery of the underlying commodity.   Restructuring and impairment chargesIn the 12 weeks ended September 8, 2012, we incurred restructuring and impairment charges of $83 million in conjunction with our multi-year productivity plan (Productivity Plan), including $8 million recorded in the FLNA segment, $1 million recorded in the QFNA segment, $29 million recorded in the LAF segment, $33 million recorded in the PAB segment, $6 million recorded in the AMEA segment, $7 million recorded in corporate unallocated expenses and income of $1 million recorded in the Europe segment representing adjustments of previously recorded amounts.  In the 36 weeks ended September 8, 2012 we incurred restructuring and impairment charges of $193 million in conjunction with our Productivity Plan, including $40 million recorded in the FLNA segment, $7 million recorded in the QFNA segment, $41 million recorded in the LAF segment, $76 million recorded in the PAB segment, $23 million recorded in the AMEA segment, $8 million recorded in corporate unallocated expenses and income of $2 million recorded in the Europe segment representing adjustments of previously recorded amounts.  In the year ended December 31, 2011, we incurred charges of $383 million in conjunction with our Productivity Plan, including $76 million recorded in the FLNA segment, $18 million recorded in the QFNA segment, $48 million recorded in the LAF segment, $81 million recorded in the PAB segment, $77 million recorded in the Europe segment, $9 million recorded in the AMEA segment and $74 million recorded in corporate unallocated expenses.  The Productivity Plan includes actions in every aspect of our business that we believe will strengthen our complementary food, snack and beverage businesses by leveraging new technologies and processes across PepsiCo's operations, go-to-market and information systems; heightening the focus on best practice sharing across the globe; consolidating manufacturing, warehouse and sales facilities; and implementing simplified organization structures, with wider spans of control and fewer layers of management.Merger and integration chargesIn the 12 weeks ended September 8, 2012, we incurred merger and integration charges of $2 million related to our acquisition of WBD, including $4 million recorded in the Europe segment and income of $2 million recorded in corporate unallocated expenses representing adjustments of previously recorded amounts.  In the 36 weeks ended September 8, 2012, we incurred merger and integration charges of $7 million related to our acquisition of WBD, all of which were recorded in the Europe segment.  In the 12 weeks ended September 3, 2011, we incurred merger and integration charges of $61 million related to our acquisitions of PBG, PAS and WBD, including $24 million recorded in the PAB segment, $11 million recorded in the Europe segment, $10 million recorded in corporate unallocated expenses and $16 million recorded in interest expense.  In the 36 weeks ended September 3, 2011, we incurred merger and integration charges of $174 million related to our acquisitions of PBG, PAS and WBD, including $77 million recorded in the PAB segment, $17 million recorded in the Europe segment, $64 million recorded in corporate unallocated expenses and $16 million recorded in interest expense.  These charges also include closing costs and advisory fees related to our acquisition of WBD.  In the year ended December 31, 2011, we incurred merger and integration charges of $329 million related to our acquisitions of PBG, PAS and WBD, including $112 million recorded in the PAB segment, $123 million recorded in the Europe segment, $78 million recorded in corporate unallocated expenses and $16 million recorded in interest expense.  These charges also included closing costs and advisory fees related to our acquisition of WBD. Restructuring and other charges related to the transaction with TingyiIn the 36 weeks ended September 8, 2012 we recorded restructuring and other charges of $137 million related to the transaction with Tingyi.Inventory fair value adjustmentsIn the 12 and 36 weeks ended September 3, 2011, we recorded $3 million and $41 million, respectively, of incremental costs in cost of sales related to fair value adjustments to the acquired inventory included in WBD's balance sheet at the acquisition date and other related hedging contracts included in PBG's and PAS's balance sheets at the acquisition date.  In the year ended December 31, 2011, we recorded $46 million of incremental costs in cost of sales related to fair value adjustments to the acquired inventory included in WBD's balance sheet at the acquisition date and hedging contracts included in PBG's and PAS's balance sheets at the acquisition date.  Management operating cash flow (excluding certain items)Additionally, management operating cash flow (excluding the items noted in the Net Cash Provided by Operating Activities Reconciliation table above) is the primary measure management uses to monitor cash flow performance.  This is not a measure defined by GAAP.  Since net capital spending is essential to our product innovation initiatives and maintaining our operational capabilities, we believe that it is a recurring and necessary use of cash.  As such, we believe investors should also consider net capital spending when evaluating our cash from operating activities.  Additionally, we consider certain other items (included in the Net Cash Provided by Operating Activities Reconciliation table above) in evaluating management operating cash flow which we believe investors should consider in evaluating our management operating cash flow results.2012 guidanceOur 2012 full-year core constant currency EPS guidance excludes the commodity mark-to-market net impact included in corporate unallocated expenses, restructuring and impairment charges, merger and integration charges, and restructuring and other charges related to the transaction with Tingyi.  In addition, our 2012 full-year core constant currency net revenue and EPS guidance exclude the impact of foreign exchange.  We are not able to reconcile our full-year projected 2012 core constant currency EPS growth to our full-year projected 2012 results because we are unable to predict the 2012 impact of foreign exchange or the mark-to-market net gains or losses on commodity hedges due to the unpredictability of future changes in foreign exchange rates and commodity prices.  In addition, we are unable to reconcile our full-year projected 2012 core constant currency net revenue growth to our full-year projected 2012 reported net revenue growth because we are unable to predict the 2012 impact of foreign exchange due to the unpredictability of future changes in foreign exchange rates.  Therefore, we are unable to provide a reconciliation of these measures.  SOURCE PepsiCo, Inc.For further information: Investor - Jamie Caulfield, Senior Vice President, Investor Relations, +1-914-253-3035, jamie.caulfield@pepsico.com; Media - Melisa Tezanos, Senior Director, Media Bureau, +1-914-253-2599, melisa.tezanos@pepsico.com